Transcription
Worsh is going to make the same choice for the same reasons. Because if you choose not to have inflation, then you choose a massive recession, a huge drop in stocks, in real estate, in bonds, maybe you choose a financial crisis. You choose to force fiscal responsibility on the government. But he's not going to choose that for the same reason nobody has chosen that.
You know, the government is about 50% bigger now than it was before CO. It's spending 50% more money. We're spending like $7.5 trillion a year, but we're barely collecting 5 trillion a year in taxes. Where's that extra money coming from? It's debt and it's being monetized. And if the Fed doesn't create that debt, there's no way that the government can service it. Um, so we're going to have inflation because that's how we pay for government. And the Fed is going to enable it under Walsh just the way it's enabled it under his predecessors. Uh, the gold market, the silver market don't get that yet. They will.
Recorded on the David Lynn report, Peter Schiff argues that the Federal Reserve is trapped. According to Schiff, policymakers can either fight inflation and risk a painful market correction or continue supporting the system with more debt and money creation. In this interview, he explains why he believes that choice will have major consequences for stocks, the dollar, and ultimately gold and silver. And his conclusion may surprise even longtime precious metals investors.
Yeah. Uh, I want to come back to all of those points, very important points, but just in the fact that the Iran war has been lost strategically. Take a look at this. The US exports about 30% of the energy it produced. Um, and this has grown in recent years. This is from the E uh EIA as of 2024. My point is Peter, do you think the US energy industry is the hidden winner from all this, given that the Strait of Hormuz is closed and then now the US is benefiting because uh they're not a net exporter, but they still export a lot of the crude?
>> Yeah, look, I think oil companies are in a good position. I mean, I own stock in some US oil companies. Um, I think higher oil prices are good for oil companies, and I think one of the results of the war is going to be higher oil prices, and so that's going to benefit um oil companies. I think oil prices were going to go up anyway. They're just going to go up even more, and the premium that's going to exist in crude for quite some time now because there's so much uncertainty. We have no idea, you know, that Strait can close back down at any moment. Meanwhile, you know, look at our strategic petroleum reserves. They're at the lowest they've ever been. And other countries have also sold down their reserves. So, I think you have a lot of demand now to replenish depleted reserves. That will just add to energy demand. And there's a lot of energy demand. Look at all the, you know, this hyperscalers and this big buildout in the data centers. There's tremendous demand for energy right now. Uh, and that's going to push up oil prices. So, sure, oil companies are going to benefit. Uh, I don't think the overall American economy is going to benefit even if we are a net exporter of oil because the benefits of higher oil are concentrated, you know, in the oil companies and the people who own stock in the oil companies.
>> But the majority of Americans don't produce oil. They don't have oil rigs in their backyard. They buy oil, you [laughter] know, and they don't work for oil companies. I mean, how many people do oil companies employ in America? It's not that big. Um, so most Americans are going to suffer higher oil prices. They're not going to be among the few who who benefit from it.
Well, you've been calling for higher inflation for quite some time on my show. In the last year, you've been right. I mean, high inflation is higher now. So, the question is, what's going to happen to the economy once interest rates go up? Now, you've argued that the interest cost is going to explode, which is going to put a lot of pressure on the deficit, which is going to put a lot of stress on the US dollar. And I wonder why, my question is for now. I wonder why the US dollar is still behaving the way it is, which is going up, despite the fact that we have the threat of higher rates potentially making investors lose confidence in the dollar.
>> Well, it's gone up, but it's not gone up a lot. I mean, it's only, it's barely above 100.
>> It's not even 101. So, it's not like it's exploded. Dollar index is not 120.
>> And and one of the reasons it's gone up is because the yen is so weak. I mean, look at the yen is breaking down about 162. And that is a yen weakness story. It's not a dollar strength story, but I think as some PE money is moving out of the yen, right? It's moving into the dollar. Um, and but overall, I think that the dollar is going to weaken because traders are are focused more on nominal rates. The Fed is going to hike rates. They've gone from forecasting rate cuts to now two or three more hikes between now and the end of the year. But these are quarter-point rate hikes. A 75 basis point hike is not going to do anything to slow the inflation train. It's way too far ahead. It's going too fast. That's too little, too late. I pay attention to real interest rates, and real interest rates have already collapsed as inflation has accelerated and the Fed has just stayed still. Uh, and so I think the markets are going to start to focus on that. Not to be fooled by a nominal payment when it's a fraction of what you're losing in purchasing power to inflation. And so rather than buying dollars to get that nominal yield that is actually a negative yield, investors will be buying gold to avoid that loss.
The Japan story, let's talk about that. That's important. Yeah, the yen is at 160, uh, 161.2, 162. Wow. Okay. I'm I'm behind. Okay. Yeah, it was like 161 and a half to 160. Yeah.
>> That's a that's a key trigger point you mentioned and uh, yeah, how does this impact the US investor in economy ultimately?
>> Well, first of all, you know, Japan is sitting on over a trillion dollars of treasuries.
>> That's right.
>> And if they're in a financial, you know, position, a difficulty where they need to pay down debt and raise cash, an obvious source is the US Treasury market. They have this big pile of US treasuries that they can liquidate. So that immediately impacts us. But also, as that puts upward pressure on interest rates in Japan. I mean, year-over-year import prices in Japan are already up 25%. And, you know, I mean, that's a big deal. And now it's going to go up even more as the yen weakens. By definition, everything costs them more. And and and so as the yen weakens and inflation accelerates, that puts more pressure on yields in Japan, which now, you know, if you look at uh the the 30-year yield, it's almost 4%. Like 3.8. A couple years ago, well, it was less than one. And the 10-year bond, which is yielding, what is it, like 2.6, 2.7, that was 10 basis points a couple years ago. And it was 10 basis points I think from like 2017 to 2022. I mean, almost zero. The Japanese government was borrowing at close to zero on 10-year paper. Uh, but now, you know, with 2.7%. But as that yield rises, it becomes a competition for treasury yields. And, you know, not just, you know, all these sovereigns compete. The Japanese government's borrowing, you know, European governments are borrowing, the US government's borrowing, right? So all these, all this competes. So as yields go up there, it's going to put upward pressure on our yields. And Japan is running debt to GDP right now. They're running a deficit of about 4 and a half percent of their GDP. That's a lot of debt, especially when they're already at 250% debt to GDP. And they're adding debt as interest rates are soaring. So Japan could find itself in a sovereign debt crisis even sooner than we find ourselves in one. But obviously, if Japan gets into a crisis, that is a problem for us too.
People have actually looked at Japan as a model for higher uh debt deficits, 250% debt to GDP. So the US is nowhere near 250%. But people look at Japan and say, well, look, the economy hasn't, you know, hasn't completely collapsed. It hasn't recovered since the late '80s and early '90s, but, you know, we [snorts] can go up to Japan's level and everything will be fine. How do you, what do you, what do you say to that?
>> Well, first of all, I don't think everything is fine in Japan. I think there's going to be a big problem.
>> Okay.
>> But just because Japan could get to 250%, doesn't mean that we can because there are some other key differences. Uh, Japan is still a creditor nation. That means that the Japanese own more foreign assets and foreign debt than foreigners own in Japan. You know, almost all the Japanese government debt is held by the Japanese. They don't owe it to the Europeans. They don't owe it to us. Whereas in America, we're the world's largest debtor nation. We owe more money than all the other debtor nations combined. So, we have an external drain. So, when we pay interest, we don't pay it to ourselves. We pay some of it to ourselves, but a lot of it we pay abroad. Japan almost pays almost everything to itself. Japan also has balanced trade. They have a surplus some years, deficit. We have over a trillion-dollar year trade deficit. So we don't just have to finance budget deficits. We have to finance trade deficits. And our GDP is much more heavily concentrated in the service sector.
M. The biggest employers in Japan are still manufacturers. The biggest employers in America are FedEx, UPS, Amazon, and Walmart. They don't produce anything. All they do is sell and transport it around. But the stuff they're selling and transporting were made in foreign countries. So our GDP is a lot of fluff. So I don't think we have anywhere near the run room that Japan had. I think they had a lot more rope to hang themselves with than we do. Uh, but they're still going to end up dangling on that rope. We're going to dangle on a shorter rope because we can't get to 250%. There's just no way that it's going to get that big here. But the other thing that we have that they don't, we have the reserve currency. So that's bought us some time. That's the only reason I think it's gone on as long as it has.
>> But at what point would Japan be forced to sell US treasuries?
>> I don't know. I mean, I guess they're never forced to. They they can keep printing money and to destroy the yen, but to me, >> they need to sell their their US treasuries and pay down debt. But even if they sold all of their foreign exchange reserves, they could only pay down about 15% of their debt. So, they'd still have a big problem. But at least they can make a dent in it. You know, it makes no sense to just hold on to that and keep selling, you know, printing more yen and issuing more Japanese government bonds when you have this pile of treasuries you can get rid of.
Peter Schiff argues that inflation is not an accident, but a consequence of policy choices. He believes governments have become dependent on deficits and debt creation, making it extremely difficult to restore true price stability without causing significant economic pain. According to Schiff, markets still underestimate how difficult it will be to control inflation while maintaining growth.
So, so going back to bring it back to home, the Fed has to raise interest rates to combat inflation, but they can't raise it too much or else the bond market's going to break and the economy is going to crack. So, what, what?
>> It's not just raise interest rates, they got to keep, if they don't keep printing money, the balance sheet is still expanding. Look at what's going on. They have to keep buying bonds. They have to keep doing quantitative easing because if they don't buy these bonds, who will?
>> I think that might be the key difference between Worsh and Powell. This is just my take. I don't know if I'm wrong, but remember how Worsh back in 2011 protested against QE and he left. Maybe he doesn't like that.
>> Yes.
>> It wasn't it wasn't brought up at the last FOMC that they're going to shrink the balance sheet, but do you think that's his next move?
>> No, he can't shrink the balance sheet. He's going to expand the balance sheet. In fact, it expanded last week. If he wants to shrink it, why isn't he shrinking it right now? In fact, what he's doing is he's setting up a task force to study the problem, right? He doesn't actually want to uh solve it because the government is running deficits now of like 3 to 4 trillion a year. If you look at what we're spending versus what we're collecting, where's the government going to get that money? The only be the Fed. The Fed is going to have to buy a lot more government debt. Uh, and it's going to create money out of thin air. It's going to create inflation in order to do it. Otherwise, long-term interest rates are going to soar because if we have to find private buyers, because who's going to buy? Remember the big, who are the big buyers of treasuries? It was foreign central banks. They're not big buyers. It was US government trust funds. Social Security trust fund. Man, they're sellers now. The Social Security trust fund sells US treasuries every year. It's not a buyer, it's a seller. Uh, so foreign central banks aren't buying. Government trust funds are selling. Who's going to buy? Is the public a big buyer? No, the public's not buying treasuries in a big way. They they don't have any money anyway. The average American is broke. Don't have any money for treasuries. But when the average American decides to invest, he doesn't want to invest for 4% yield. They're they're buying SpaceX. you know, they they they they they want to go to the moon, right? They they don't they don't want to clip a 4% 5% coupon, even if treasuries were six or 7%. They don't want that.
>> Yeah. So, I there's just no demand there. The Fed is going to supply it. Now, it it shouldn't. The Fed should allow the collapse. The Fed should force the government to cut spending. The government should be cutting social security, Medicare, national defense, government pensions, all farm subsidies, all this stuff should be cut. And if the Fed refused to buy all this debt, it would be cut. But, you know, the Fed's not going to do that. That the Fed is going to cooperate and enable the proflegacy just like it's done, you know, since Greenspan.
>> Well, what's a more important tool for fighting inflation? Uh, monetary, the money supply, which is the balance sheet size, or interest rates?
>> Well, both actually. I think the money supply and and they kind of go together. Um, but remember, inflation is about an expansion of money and credit. So the reason that prices go up when you have inflation is because there's more money chasing a supply of goods. Well, you can buy goods with credit. You don't need money. I can go, I can have no money. I can go into a store and I can buy all kinds of stuff even though I have no money. I can use credit. And so credit acts like money in an economy. And so inflation is an expansion of money and credit. You get more credit, you get more money, you get higher prices. The Fed is basically controlling that. Controls the money supply, controls price of credit, and and so we've had artificially low interest rates and an expanding balance sheet. That's been the source of our inflation. In order to deflate, we need to shrink the balance sheet and let interest rates go up. But if we do that, the whole house of cards that was erected on top of all that cheap money is going to come crashing down.
>> So, and that is that's what nobody wants. Like Donald Trump, when you talk to Donald Trump about housing,
>> Mhm.
>> he says he wants housing prices to keep rising, even though they're already unaffordable and first-time homebuyers are now 40 years old because that's how old they have to be before they can afford to overpay for a house. Donald Trump wants houses to get more expensive because he wants the older people to stay rich or to feel rich. He wants people who bought their homes 20, 30 years ago at a much lower price to stay rich on paper, and he doesn't want uh the prices to come down. Well, if mortgage rates go up to 8, 10%, 12%, I mean, they have to come crashing down, and that's where they would go. They would probably go higher than that if the Fed did the right thing.
>> This is actually what he said. So, this is you're you're right. I just I I just pulled this up as you were mentioning this. Scott said though is uh again, existing housing, people that own their homes, we're going to keep them wealthy. We're going to keep those prices up. We're not going to destroy the value of their homes so that somebody that didn't work very hard can buy a home. We're going to get we're going to make it easier to buy. We're going to get interest rates down. But I want to protect the people that for the first time in their lives feel good about themselves. They feel like they've.
>> How's he going to do that? He's going to he's going to make it more affordable for people to buy homes, but also stop people from owning homes to have the wealth collapse.
>> Well, he wants to make it easier to overpay for homes by getting mortgage rates down so you can borrow more money to overpay for a house instead of letting the house price come back down. See, he wants people who are benefiting from a bubble. There's a housing bubble. And he's like, I don't want the housing bubble to pop because then the people who are benefiting from the bubble won't be as rich.
>> That's right. Well, they never should have been this rich, and it's all on paper. What is a house worth that you can't sell? Because ultimately, the house is worth what the buyer can afford to pay. And if you want to pretend your house is worth a million dollars, but the highest offer you've ever got was $700,000, your house ain't worth a million.
>> I don't care what you think it's worth. If you can't sell it for a million, it's not worth a million.
>> Is he right, though? It's not just houses. The wealthy people own stocks. If the market collapses, if the housing market collapses, we go into a recession. So maybe he's got a point there.
>> Well, he's got a point. The solution involves bursting a lot of bubbles. And so asset prices have to come down. But since he doesn't want asset prices to come down, goods prices are going to go up instead.
>> And so real asset prices are going to fall no matter what the president does. But it he can keep asset prices propped up if he has to, with the help of the Fed. But then consumer prices go up. So instead of your house losing half its value, everything you want to buy doubles. And so it seems like your house has lost half its value because, you know, everything is twice as expensive and your house stayed the same. Right. So, um, but they they they can't create real wealth out of thin air. Yeah. They could they could play around with the numbers by creating inflation and they can make people feel that they're richer. Oh, look, look. I have a million-dollar house. Okay, you have a million-dollar house, but you have a $10,000 box of cereal in the in in in in the pantry. You know, what is that million-dollar house worth?
>> What would you do? Let's say Trump invites you to be the next Fed chair. He says, "Peter Schiff, you're you're you've got Kevin Worsh's job. I mean, you're you're in a quandary here, right? You can't raise interest rates too high or you're going to crash markets." He already called me a loser and an idiot. [laughter] So I don't I don't think he is going to appoint me. Um, but look, if I was the chairman of the Federal Reserve, yeah, that the the buck would stop with me. I mean, I would basically, you know, let everybody know the Fed is no longer in the business of monetizing government debt. There is no Fed put in the market. If the market drops, the market drops.
>> Okay. So the moment you say that, we're going to get a two like a 700-point drop in the Dow.
>> Oh, probably more than that. [laughter]
>> Probably more than that.
>> Drop a lot more than that.
>> You're you're okay with that as Fed chair, like hypothetically? I mean, wouldn't that just have a huge ripple effect on the entire economy if the wealth effect holds?
>> Well, yeah. Well, it's like, do I want to rip the band-aid off or do I want to peel it off slowly? Yeah. Look, I want to get it over with. I look, I know it's going to be bad. It's just going to be worse if we don't do it. And had we done it my way, had they made me Fed chair 20 years ago and I would have done the right thing, we would be in great shape right now. And it wouldn't have been as painful to do it 20 years ago as it's going to be to do it now. But that doesn't mean you don't do it.
>> Alan Greenspan passed away. Alan Greenspan passed away today. What, what was his legacy?
>> Well, he wrote the playbook that everybody is following. I mean, he was the the architect of the house of cards that collapsed in 2008. I blamed him for the 2008 financial crisis years before the crisis happened because I knew that his policy mistakes were setting us up for that crisis, and it blew up on Bernanke, but Greenspan created the problem, and I knew it, and I described it for years before it blew up. Um, but then uh, Pal, I mean, not Pal, um, Bernanke, then Yellen, then Pal, all followed the Greenspan playbook to kick the can down the road and keep interest rates artificially low, and you know, they expanded the balance sheet.
And put us in this situation that we're in today. I mean, a a real crash, which was the topic of one of my books. You could see on my desk there. But the real crash is coming.
Schiff explains that the Federal Reserve faces an impossible balancing act. If rates remain too low, inflation continues to erode purchasing power. But if rates rise enough to seriously fight inflation, asset bubbles across stocks, bonds, and real estate could begin to unwind. In his view, policymakers are more likely to tolerate inflation than allow a full-scale market reset.
We have to bring up gold and silver then since you brought up the GEX is still up uh from one year ago, even though it is down talking about calendar year. Yeah. Yeah.
>> Yeah. Yeah. Exactly. From 12 months ago, calendar year, it is down. Why, why is the sentiment in gold and miners so low right now? I've talked to a lot of people and if you look at, you know, if you just zoom out over the last 7 to 8 to 12 months, it's done quite well. It's just a bit of a pullback from this really euphoric period here. What, what's what's been going on?
Yeah, poor sentiment has defined the entirety of the bull market, right? I mean, investors were never excited about the mining stocks because they never believed the rally in gold and silver. And I think what's really caused this sentiment to get negative, not just the new idea that we have a hawkish Fed that's going to, you know, come out swinging with these rate hikes, but the fact that gold went down during the war is leading a lot of people to question whether or not gold is even a safe haven anymore. Like, hey, why did it go down? Why didn't it go up? And they overlooked the fact that it went up so much before the war. It already priced the war in before the war happened. And by the time the war happened, it was to buy the rumor, sell the fact. Plus, gold was so overbought going into the war. I believe had we started the war and gold was still around 3,000 and silver was still around 30, both would have gone way up during the war. The only reason they didn't, the only reason they came down was because they went up so much right before the war started. But that's created a lot of false uh negative sentiment on the metals that, hey, they don't work anymore. And a lot of the gold enthusiasm over the past decade was stolen by crypto and Bitcoin. And that's where all the action was. That's where all the hype was. All the Wall Street money, all the political clout was being concentrated on Bitcoin. And that stole a lot of gold thunder. But I think as the air really comes out of this Bitcoin bubble, and it's coming out, it's just going to come out faster and more people are going to recognize it. Right now, your typical Bitcoin guy is like a deer in a headlight. He doesn't even realize what's coming. He's just frozen. Uh, but they're all going to get hit by a Mac truck, and and and and that's going to take the spotlight off of Bitcoin and put it right back on gold where it belongs. And I think to the extent that crypto is going to be a part of it, it's going to be about tokenized gold.
You know, gold is the future of blockchain, not Bitcoin. Instead of making gold obsolete, blockchain makes gold better. It makes it more fungible, more divisible, more portable. It makes gold better money. Bitcoin was never money. Even though it was on a blockchain, it wasn't money. Gold's been money. But now when you tokenize it, it becomes even better money. It does everything that Bitcoin promises to do but can't.
>> Yeah. But even the World Gold Council is participating in exactly this. By the way, I I spoke to David Tate at the Consensus Miami conference. Okay. So, final question. Interest rates go up this year. Suppose the Fed raises rates. What is the biggest thing to re-rate? In other words, if markets move, what moves the most?
Well, I think when the Fed starts to raise rates, I would expect gold to go up. You know, just buy the rumors, sell the fact. Everybody knows they're going to raise rates, so get it over with. Uh, because once they start raising rates, the focus will be that it's not enough and that it's going to weaken the economy, and that's going to create bigger budget deficits, and that's going to be good for gold. Uh, so I think by the time we do get a rate cut, gold is going to go up. But we may not get a rate cut because between now and the first rate cut, we could have a big drop in the stock market. We could get some really negative economic data. We can get some very weak jobs reports, and then that takes the rate hikes off the table, and that's really going to send gold uh through the roof.
As the discussion turns to precious metals, Schiff argues that investor sentiment remains surprisingly weak despite gold's strong long-term performance. He believes many investors have been distracted by speculative assets while overlooking what he sees as a growing case for gold and silver. If economic weakness and inflation begin occurring at the same time, Schiff expects precious metals to attract much greater attention. Peter Schiff's message is simple: The financial system has become increasingly dependent on debt, deficits, and monetary intervention. He believes policymakers will ultimately choose inflation over allowing markets to fully reset. And that could have major implications for the dollar, stocks, and precious metals.
But what do you think? Can the Fed control inflation without triggering a major downturn? Or is a larger reckoning unavoidable? Let us know in the comments. And if you enjoyed this video, don't forget to subscribe for more insights on gold, silver, and the global economy.